Business chapter 1

free enterprise
the system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it
cultural diversity
differences among people in a workplace owing to race, ethnicity, and gender
the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs
the organized effort of individuals to produce and sell for a profit, the goods and services that satisfy society’s needs through the facilities available on the internet
what remains after all business expenses have been deducted from sales revenue

rewards to the owners for taking on risks

all the different people or groups of people who are affected by an organization’s policies, decisions, and activities

i. Anybody who has an interest in our business succeeding (investors, shareholders, owners, banks, consumers, employees, government, former employers, family, the entire community, the media

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the study of how wealth is created and distributed
the study of the decisions made by individuals and the businesses
the study of the national economy and the global economy
the way in which people deal with the creation and distribution of wealth
factors of production
resources used to produce goods and services
a person who risks, time, effort, and money to start and operate a business
an economic system in which individuals own and operate the majority of businesses that provide goods and services
invisible hand
a term created by Adam Smith to describe how an individual’s personal gain benefits others and a nation’s economy
market economy
an economic system in which businesses and individuals decide what to produce and buy, and the marked determines quantities sold and prices
mixed economy
an economy that exhibits elements of both capitalism and socialism
consumer products
goods and services purchased by individuals for personal consumption
command economy
gov decides what goods and services will be produced, how they will be produced, for whom available goods and services will the produced, and who own and controls the major factors of production
the average level of output per worker per hour
total dollar value of all goods and services produced by all people within the boundaries of a country during a one year period
a. Top dollar value is the selling price.
b. New good produced this year (buy a used textbook doesn’t count has to be new)
c. Has to be produced on US soil to count in US GDP (produced in our borders)
d. 18 Trillian dollars
a general rise in the level of prices
i. prices go up
ii. 2% a year is healthy
iii. have to go up to allow wages to go up
a general decrease in the level of prices
not very common
unemployment rate
the percentage of a nation’s labor force unemployed at any time
4.9% considered great
consumer price index
monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area
producer price index
an index that measures prices that producers receive for their finished goods
business cycle
the recurrence of periods of growth and recession in a nation’s economic activity
two or more consecutive three month periods of decline in a country’s GDP
2 consecutive quarter (6 months) of GDP decline (obvious)
a severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to a recession
recession with high unemployment and /or falling prices (declared by policy makers) (worse than recession) (haven’t had one since great depression
monetary policies
federal reserve’s decisions that determine the size of the supply of money in the nation and the level of interest rates
fiscal policy
government influence on the amount of savings and expenditures accomplished by altering that tax structure and by changing the levels of government spending
federal deficit
a shortfall created when the federal government spends more in a fiscal year than it receives
when the government spends more than it receives in tax revenues (one year at a time thing) (borrow the money) (bonds)
national debt
the total of all deficits
accumulated debt from the deficits (every year we borrow it adds to the debt) (our debt is 19 trillion)
rivalry among businesses for sales to potential customers
perfect competition
the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of a product

lots of firms
identical products
very low barriers of entry
no ads
no profits in LR

the quantity of a product that buyers are willing to purchase at each of various prices
the quantity of a product that buyers are willing to purchase at each of various prices
market price
the price at which the quantity demanded is exactly equal to the quantity supplied
monopolistic competition
a market situation in which there are many buyers along with a relatively large number of sellers who differentiate their products from the products of competitors

lots of firms
similar but not identical products
low barriers to entry
lots of ads
no profits in LR

product differentiation
the process of developing and promoting differences between one’s products and all competitive products
a market or industry in which there are a few sellers

a few firms
identical or similar products
high barriers to entry
lots of ads
economic profits

a market or industry with only one seller, and there are barriers to keep other firms from entering the industry

one firm
unique products
very high barrier of entry
ads to create demand
economic profts

standard of living
a loose, subjective measure of how well off an individual or a society is, mainly in terms of want satisfaction thought goods and services
a system of exchange in which goods or services are traded directly for other goods or services without losing money
domestic system
a method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the merchant entrepreneur
factory system
a system of factoring in which all the materials, machinery, and workers required to manufacture a product are assembled in one place
the separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals
service economy
an economy in which more effort is devoted to the production of services than to the production of goods
creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic, and other requirements of present and future generations
Honesty and integrity
Willingness to work hard
time management skills
self confidence
Willing to learn
what are firms looking for?
interpersonal analytical technical conceptual
4 types of management skills
interpersonal skills
interact with those you manage: employees, coworkers, boss, customers
analytical skills
problem solving. Need to identify the problem and find different solutions and pick the best one
technical skills
need to know how to do the job the employees are doing. Also help my employees to do their job. (Lower levels of management)
conceptual skills
ability to think abstractly and big picture thinking. Need to look at organization as a whole and understand the vision of the company as a whole so you can develop a strategy to get there. (Upper levels of management)
what percent of business fail within the first 10 years
be organized
satisfy needs
make profit
to be defined as a business, an organization must do what?
basic questions
• What goods and services will be produced? And how much?
• How will goods and services be produced? (ethical implications are here)
• For whom will the goods and services be produced? (distributing the goods and services)
• Who owns or controls the factors of production? (land, labor, capital)
adam smith
i. Scottish political philosopher
ii. Father of economics
iii. 1776 published wealth of nations book
iv. individuals are responsible for wealth creation. Not the gov
v. private property should be owned by individuals not gov
vi. econ freedom means anyone can start a business and compete
vii. role of gov should be limited
viii. role of gov should stay out of the market
the individual
Who is responsible for wealth creation in capitalism?
the individual
Who owns private property in capitalism?
economic freedom
allows for competitive markets and free entry and exit by firms
US is __________ economy with 2/3 of resources privately owned and 1/3 government owned
i. Consumers 70%, gov 30%
karl marx
who says gov answers all the basic questions
All resources owned by the government and all decisions made by government. Compete government control. Doesn’t exist anywhere never been successful
all large businesses owned by the government, some small businesses owned individual plus substantial welfare state/safety net (small bakery privately own, bread factory is owned and run by government) (shoe repair store is privately owned but shoe factory is owned by gov)
traditional economy
tend to be in more rural developing nations. do things bc that’s how we’ve always done it
18 trillion
current US GDP
labor force
a. people who are actively looking for jobs
i. Number of people who could work and trying to work
ii. Able body people of working age
iii. At its lowest rate in like 50 years
iv. Makes unemployment rate look worse than it actually is
GDP decreases